MBHI Midwest Banc Hlds (MM)

Midwest Banc Holdings, Inc. (NASDAQ:MBHI), the holding company for Midwest Bank and Trust Company (the “Bank” or “Midwest Bank”), announced results for the third quarter of 2009. The company recorded a net loss of $41.3 million for the third quarter of 2009 compared to a net loss of $159.7 million in the third quarter of 2008, and a net loss of $76.5 million for the second quarter of 2009. On a per share basis, net loss per share for the quarter was $1.52, compared to a net loss per share of $5.76 in the third quarter of 2008 and net loss per share of $2.78 in the second quarter of 2009. Results for the third quarter include a $37.5 million provision for credit losses, which increased the allowance for loan losses to 3.4 percent of loans from 2.5 percent at June 30, 2009. The company also completed its annual goodwill impairment study as of September 30, 2009 and determined that goodwill was not impaired.

“As a result of great effort, foresight, and aggressive action by management, as of September 30, 2009 our Bank remains ‘well-capitalized’ by all regulatory measures,” said Roberto R. Herencia, chief executive officer. “While significantly increasing the loan loss provision, our Bank also maintained its ‘well-capitalized’ status through aggressive cost-cutting actions, loan portfolio reductions and a capital contribution from the holding company.”

“We have improved the quality of the Bank’s balance sheet over the past two quarters through building of loan loss reserves, repositioning of the investment portfolio to provide an extremely high level of liquidity and re-assessing the valuation of our deferred tax assets, while maintaining our Bank’s regulatory capital ratios as we execute a complex and comprehensive capital plan.”

“We have hired new credit talent and our objective is to get in front of credit issues. We have performed several special portfolio reviews, increased our vigilance to allow for early identification of problem loans, significantly increased resources available to manage problem loans, and tightened pricing and underwriting standards - all in less than six months. Our provision for loan losses continues to be double our net charge-offs, and ratio of the allowance for loan losses to loans increased significantly to 3.40 percent at September 30, 2009, from 2.50 percent at June 30, 2009 and 1.58 percent at September 30, 2008. Timely recognition of exposure allows us to work with our customers who are feeling the effects of the downturn in the Chicago commercial real estate market, including the construction and development segment, prior to the need to charge-off uncollectible amounts.”

Q3 Highlights

• At September 30, 2009, the Bank was well-capitalized with a 10.2% total risk-based capital ratio and the holding company was 5 basis points less than adequately capitalized, with a 7.95% total risk-based capital ratio. In July, we announced our capital plan designed to strengthen our capital position. As further detailed below, we made progress during the third quarter with filings with the SEC, negotiations with the U.S. Treasury and entering into a Forbearance Agreement with our senior lender on October 22, 2009, during which period the company is not obligated to make interest and principal payments in excess of funds held in a funded deposit security account. Management believes the forbearance period provides sufficient time to complete all major components of the capital plan.
• Key lending personnel were re-assigned to our special assets (loan workout) group. The Bank has devoted additional resources to its workout unit and engaged an independent firm to actively manage problem loans. The Board of Directors has announced that Stephen L. Eastwood has accepted the position of Executive Vice President and Chief Risk Officer. Eastwood brings more than 35 years of experience in the resolution of complex financial issues and the building of effective risk management models to Midwest Bank, where he will be responsible for the Bank’s credit and compliance risk management. The appointment will become effective upon completion of the required notice to the Federal Reserve.
• The level of the provision for loan losses recognized was 215% of net charge-offs in the third quarter, 219% in the second quarter and 294% in the first quarter, which shows proactive management in this credit environment.
• Liquidity remains high at the Bank. Liquid assets increased by $86.5 million during the quarter to $324.6 million.
• Cost reductions put in place in the second and third quarters are reducing the noninterest expense run rate. Employees are fully engaged in the company’s priorities, while focusing on serving customers effectively and efficiently.
• We anticipate entering into a formal supervisory action with the Bank’s primary regulators, who have recently completed an examination of the Bank. In anticipation, we have been diligently working to address matters they have identified and look forward to resolving them with the regulators as quickly as possible.

Capital Plan Execution

• On July 28, 2009, the company announced that it had developed a detailed capital plan and timeline for execution (the “Capital Plan”). The Capital Plan was adopted in order to, among other things, improve the Company’s common equity capital and raise additional capital to enable it to better withstand and respond to adverse market conditions.
• On October 26, 2009, we amended our registration statement previously filed with the SEC in anticipation of launching the exchange offer of common stock for our Series A preferred stock.
• We are in negotiations with the U.S. Treasury related to conversion of the $84.8 million outstanding preferred stock issued to the U.S. Treasury under its Capital Purchase Program in 2008, to common stock. Concurrently, we have amended our application under the Treasury’s Capital Assistance Program that would facilitate the conversion of the preferred stock to common stock.
• As previously announced, we have been advised by our senior lender that we are in default under our term and revolving loan agreements (the “Credit Agreements”). On October 22, 2009, the company entered into a Forbearance Agreement with its Lender through March 31, 2010, during which period the company is not obligated to make interest and principal payments in excess of funds held in a deposit security account (which was initially funded with $325,000), and while retaining all rights and remedies within the Credit Agreements, the Lender has agreed not to demand payment of amounts due, and has agreed to forbear from exercising the rights and remedies available to it in respect of existing defaults and future compliance with certain covenants through March 31, 2010, other than the continued imposition of default interest rates. Management believes that the Forbearance Agreement provides the company sufficient time to complete all major elements of the Capital Plan.
• The company is pursuing a new common equity raise, the proceeds of which will be used for general corporate purposes, including injecting capital into the Bank.

Loan Portfolio

Average total loans decreased $79.6 million during the third quarter of 2009. From June 30, 2009 to September 30, 2009, loans outstanding declined $105.2 million, primarily due to stricter underwriting standards. Average loans yielded 5.32 percent in the third quarter, compared to 5.47 percent in the second quarter, with 82 percent of all loans tied to prime having interest rate floors in place and 78 percent of those loans currently at their floors.

The table below presents the loan portfolio as of September 30, 2009, including the loan balances, amounts and remaining percentage availability and total loan commitments.

Loan Portfolio As of September 30, 2009 ($ in millions)             Total Total Percent Loan Type Balance Availability Commitment Availability   Land $ 112.9 $ 3.1 $ 116.0 2.7 percent Land Development, Residential 16.9 1.2 18.1 6.6 Land Development, Commercial 15.6 3.7 19.3 19.2 Land Development, Teardown 8.6 - 8.6 - Condominium 65.4 10.4 75.8 13.7 Residential Construction 69.6 3.9 73.5 5.3 Commercial Construction 26.6 1.1 27.7 4.0 Residential Non-Builder 7.3 1.1 8.4 13.1 Letters of Credit - 0.3 0.3 100.0 Other 1.1 - 1.1 - Total Const. & Land Development 324.0 24.8 348.8 7.1   1-4 Residential 60.2 - 60.2 - 1-4 ARM 47.3 - 47.3 - Total Residential 107.5 - 107.5 -   Home Equity Fixed 18.9 - 18.9 - Home Equity Floating 209.1 89.0 298.1 29.9 Total Home Equity 228.0 89.0 317.0 28.1   CRE - Non-Owner Occupied 738.4 31.5 769.9 4.1 CRE - Owner Occupied 538.4 10.4 548.8 1.9 Total CRE 1,276.8 41.9 1,318.7 3.2   Commercial & Industrial 504.3 328.9 833.2 39.5   Agricultural 7.0 0.8 7.8 10.3   Consumer 5.7 2.1 7.8 26.9   Overdrafts, Settlement, Miscellaneous 0.8       Total Portfolio $ 2,454.1 $ 487.5 $ 2,940.8 16.6 percent

• Total construction and land development loan commitments are 92.9 percent funded.
• Land and land development loans represent 6.3 percent of the loan portfolio.

Asset Quality

During the third quarter, steps were taken to improve the credit review function at Midwest Bank:

• The Bank has strengthened its portfolio review process, tracking of credit trends and any document exceptions.
• The Bank has devoted additional resources to its loan workout unit and engaged an independent firm to actively manage problem loans. This expansion and early problem loan identification afforded by the quarterly asset review will enable Midwest Bank’s workout group to identify and manage problem loans at an earlier point in their life-cycle, leading to more favorable outcomes.

In the third quarter, we recorded a provision for credit losses of $37.5 million and recognized net loan charge-offs totaling $17.1 million. Non-accrual loans increased $98.9 million compared to the prior quarter to $193.9 million, or 7.9 percent of loans.

The table below presents certain loan quality information as of September 30, 2009, including loan balance by type, amounts and percentage by past due and nonaccrual status, amount of specific reserve, and year-to-date gross charge-off amounts.

Loan Quality ($ in millions)                 2009 As of September 30, 2009 Gross 30-89 Days Past Due Non Accrual Specific Charged- Loan Type Balance ($) Percent ($) Percent Reserve Off   Land $ 112.9 $ 4.2 3.7 percent $ 25.0 22.1 percent $ 5.0 $ 1.0 Land Development, Residential 16.9 - - 2.1 12.4 0.4 0.7 Land Development, Commercial 15.6 - - 2.8 17.9 - - Land Development, Teardown 8.6 - - 8.6 100.0 4.0 - Condominium 65.4 5.2 8.0 7.7 11.8 1.2 2.6 Residential Construction 69.6 0.9 1.3 30.1 43.2 6.0 2.7 Commercial Construction 26.6 2.2 8.3 3.9 14.7 0.2 - Residential Non-Builder 7.3 0.9 12.3 0.6 8.2 - - Letters of Credit - - - - - - - Other 1.1 -   - -   - - - Total Const. & Land Development 324.0 13.4 4.1 80.8 24.9 16.8 7.0   1-4 Residential 60.2 - - 2.7 4.5 - 0.4 1-4 ARM 47.3 2.3   4.9 5.3   11.2 0.4 0.6 Total Residential 107.5 2.3 2.1 8.0 7.4 0.4 1.0   Home Equity Fixed 18.9 0.3 1.6 0.2 1.1 - 0.1 Home Equity Floating 209.1 2.0   1.0 2.1   1.0 0.1 0.2 Total Home Equity 228.0 2.3 1.0 2.3 1.0 0.1 0.3   CRE - Non-Owner Occupied 738.4 50.9 6.9 56.7 7.7 13.6 5.2 CRE - Owner Occupied 538.4 3.7   0.7 22.4   4.2 2.2 0.5 Total CRE 1,276.8 54.6 4.3 79.1 6.2 15.8 5.7   Commercial & Industrial 504.3 6.6 1.3 23.7 4.7 5.7 17.9   Agricultural 7.0 - - - - - -   Consumer 5.7 0.3 5.3 - - - 0.1   Overdrafts, Settlement, Miscellaneous 0.8 - - - - - 0.3           Total Portfolio $ 2,454.1 $79.5   3.2 percent $ 193.9   7.9 percent $ 38.8 $ 32.3

Non-accrual loans in the construction and land development portfolio increased $50.9 million or 170 percent from the second quarter. The largest contributing sub-categories within construction and land development were: land, which increased $19.5 million; land development – teardown, which increased $8.6 million; and residential construction, which increased $22.7 million.

In connection with execution of the capital plan, with the assistance of independent outside parties, management performed cumulative loan loss studies under various methodologies and assumptions, including highly stressed scenarios, in order to determine the optimal capital structure for the Bank. Credit reviews were conducted on both a portfolio and individual loan level in order to estimate future losses under various market conditions.

With the additional resources recently devoted to the loan workout area, management also developed a comprehensive understanding of the factors impacting the primary and secondary sources of repayment and collateral support of the current portfolio, and has used this information in its computation of the allowance for loan losses. In determining loan specific reserves in the allowance for loan losses, the company generally assigns average discounts of 20-35% to independent appraisal values, dependent upon loan and collateral type. These discount rates have been adjusted upward in recent periods based upon the rapid deterioration in the current Chicago commercial real estate market. With the additional resources devoted to the Bank’s loan workout area, management also has better knowledge of current liquidity conditions of borrowers. As a result, although the company’s allowance for loan losses to nonperforming loans ratio dropped to 43% as of September 30, 2009, from a range of 58-62% during December 2008 through June 2009 period, specific reserves to loans analyzed for possible impairment increased to 20% from 7% as of December 31, 2008 and 15% in June 2009.

• Land loans - $11.0 million of the $19.5 million increase was related to one relationship with collateral located in a western suburb, consisting of improved lots on 25 acres. The property value has declined and there are currently no units under contract. The guarantors have limited liquidity and net worth and continue efforts to raise equity to fund the real estate investment. The Bank has specifically reserved $2.9 million for probable losses.
• Land development, teardown loans – The entire $8.6 million increase was related to an acquisition and development loan for property on 26 acres in McHenry County. The borrower’s plans to sell portions of the property have taken longer than expected. The guarantor adds only limited financial support. $4.0 million has been specifically reserved.
• Residential construction loans - $12.6 million of the $22.7 million increase was related to a construction project for several projects in and near Lake County. The Bank has specifically reserved $4.4 million.

Midwest Bank also recognized significant deterioration in its commercial real estate portfolio, with a $34.7 million increase in non-accrual loans to $79.1 million at September 30, 2009, representing a 78 percent increase as compared to $44.4 million in non-accrual loans at the end of the second quarter of 2009. Non-owner occupied commercial real estate loans experienced the greatest deterioration with non-accruals in this category increasing $29.9 million. Of the 38 loan relationships (averaging $1.5 million) within this non-accrual category, the largest increases came from three relationships:

• A $9.5 million relationship – This relationship consists of several loans for various commercial properties in Cook County. Third party real estate management and marketing firms have been engaged by the borrower. The management company is focusing on stabilizing buildings, renewing leases and seeking new tenants. The properties securing their loans have experienced increased vacancies and resulting decrease in operating income to provide sufficient cash flow to meet contractual loan payments. Guarantor has limited liquidity. The Bank has specifically reserved $1.3 million.
• A $6.5 million relationship – Slow sales on a project located in Cook County. The properties securing their loans have not sold with the borrower now renting properties at a level that is not sufficient to meet contractual loan payments. There are multiple guarantors who have limited liquidity. $2.5 million has been charged-off and the Bank has specifically reserved $1.5 million.
• A $5.3 million relationship - The property development has stalled and guarantor is considering alternative strategies to sell or liquidate asset. The guarantor is currently providing contractual payments, however, in the future their liquidity position will no longer enable them to continue to meet loan repayment terms. The Bank has specifically reserved $1.0 million.

The last of the categories to experience significant deterioration was the commercial and industrial loan portfolio with non-accrual loans increasing $10.7 million (net of $7.5 million of third quarter gross charge-offs) to $23.7 million, or 82 percent, when compared to the second quarter 2009. $9.8 million of the $10.7 million increase was related to one relationship representing three separate projects in Cook County. The Bank believes the value of these loans is supported by the guarantees of the borrowers. The Bank continues to work with these borrowers.

Liquidity

The Bank’s overall liquidity position improved, partially due to a $17.7 million reduction in the securities portfolio and a $105.2 million reduction in loans during the third quarter. Liquid assets, including excess reserves on deposit at the Federal Reserve Bank and unencumbered securities, increased by $86.5 million during the quarter to $324.6 million. Total deposits increased by $16.7 million or 0.7 percent compared to the second quarter.

Net Interest Margin

Net interest margin decreased 69 basis points from 2.52 percent in the second quarter to 1.83 percent in the third quarter. A majority of this decline was attributable to the decline in the overall yield on the securities portfolio to 0.95 percent from 3.03 percent in the second quarter. The 208 basis point decline in the securities portfolio was due largely to the replacement of bonds with lower-yielding U.S. Treasury Bills and Government National Mortgage Association (GNMA) mortgage backed securities which began in May 2009. Since June 30, 2009, approximately $95.8 million in matured Treasury bonds were replaced with GNMA securities. Net interest reversals related to the $87.8 million increase in non-performing loans and a decrease in interest income associated with the $105.2 million decline in the loan portfolio also contributed to the $5.1 million decline in our net interest income. Our net interest margin was positively impacted by the decline in cost of deposits coupled with a successful retail CD campaign raising over $65 million in new deposits during the quarter.

Noninterest Income

Noninterest income for third quarter 2009 declined to $3.7 million from $7.3 million in the second quarter 2009. This decline was primarily attributable to a decrease in securities gains; second quarter net gains on the securities portfolio repositioning were $4.3 million compared to net gains of approximately $0.4 million in the third quarter. The liquidation of bank-owned life insurance in the second quarter also resulted in lower noninterest income by $0.5 million for the third quarter.

Noninterest Expense

Noninterest expense for third quarter 2009 declined to $22.5 million, compared to $24.4 million in second quarter 2009. The decline in noninterest expense of $2.0 million in the third quarter reflects the impact of the cost reduction efforts, which began late in the second quarter. Excluding one time impacts, salaries and benefits were $1.8 million lower compared to the second quarter reflecting a reduction in force of 77 full-time equivalent (FTE) employees (116 FTE employees, or a 22 percent reduction year to date), salary reductions for remaining employees and suspension of the company’s 401(k) contribution. Other expenses were down due to the second quarter FDIC special assessment of $1.7 million and expense control across all discretionary categories. Offsetting the cost savings were increases in write-downs and related expenses for foreclosed properties of approximately $2.6 million and professional fees related to credit review, consultants and legal of $0.9 million.

Financial Highlights

• Diluted earnings (loss) per share was ($1.52) for third quarter and ($4.57) for first nine months of 2009
  • Compared to ($2.78) for second quarter 2009
  • Compared to ($5.76) for third quarter 2008
  • Compared to ($5.93) for first nine months of 2008
• Net income (loss) was ($41.3) million for third quarter and ($123.1) million for first nine months of 2009
  • Compared to ($76.5) million for second quarter 2009
  • Compared to ($159.7) million for third quarter 2008
  • Compared to ($162.7) million for first nine months of 2008

• Net interest margin was 1.83 percent for third quarter and 2.30 percent for first nine months of 2009
  • Compared to 2.52 percent for second quarter 2009
  • Compared to 2.77 percent for third quarter 2008
  • Compared to 2.83 percent for first nine months of 2008

Loans and Loan Quality

• Loans in third quarter 2009 decreased
  • $105.2 million compared to second quarter 2009
• Annualized net charge-off rate was 2.71 percent for third quarter 2009
  • Compared to 1.41 percent for second quarter 2009
  • Compared to 3.98 percent for third quarter 2008
• Nonaccrual loans at September 30, 2009 were $193.9 million or 7.90 percent of loans
  • Compared to 3.71 percent at June 30, 2009
  • Compared to 2.42 percent at September 30, 2008

• Nonperforming assets at September 30, 2009 were $214.9 million, or 8.68 percent of loan-related assets
  • Compared to 4.87 percent at June 30, 2009
  • Compared to 2.74 percent at September 30, 2008
• Nonperforming assets at September 30, 2009 were $214.9 million, or 6.06 percent of total assets
  • Compared to 3.52 percent at June 30, 2009
  • Compared to 1.91 percent at September 30, 2008

• Allowance for loan losses at September 30, 2009 was 3.40 percent of loans
  • Compared to 2.50 percent at June 30, 2009
  • Compared to 1.58 percent at September 30, 2008
• Allowance for loan losses to nonaccrual loans was 43 percent at September 30, 2009
  • Compared to 67 percent at June 30, 2009
  • Compared to 65 percent at September 30, 2008
• Delinquencies 30-89 days were 3.24 percent of loans at September 30, 2009
  • Compared to 2.18 percent at June 30, 2009
  • Compared to 0.99 percent at September 30, 2008

Capital Ratios at September 30, 2009:

         

Company

Bank

-- Tier 1 common risk-based (1.24 %) 8.88 % -- Tier 1 risk-based 6.05 % 8.88 % -- Total risk-based 7.95 % 10.17 % -- Tier 1 leverage 4.26 % 6.24 %

Additional financial data are contained in the accompanying statements, tables and schedules.

Hosting a Conference Call

We will conduct a conference call to discuss these results Wednesday, October 28, 2009, at 11:00 a.m. Eastern time / 10:00 a.m. Central time.

The webcast and call will be hosted by members of management. A brief discussion of quarterly results and trends will be followed by questions from institutional investors and analysts invited to participate in the interactive portion of the discussion.

Interested parties wishing to participate in the interactive portion of the call can dial in to 800-860-2442 or +1 412-858-4600 for international calls. The live webcast can be accessed at www.midwestbank.com and will be available for replay on that website. The audio replay may be accessed through November 5, 2009 at 877-344-7529 or +1 412-317-0088. The replay passcode is 434307.

About Midwest

We are a half century old community bank with $3.5 billion in assets at September 30, 2009. We have two principal operating subsidiaries; Midwest Bank and Trust Company and Midwest Financial and Investment Services, Inc. Midwest Bank has 26 locations serving the diverse needs of both urban and suburban Chicagoland businesses and consumers through its Commercial Banking, Wealth Management, Corporate Trust and Retail Banking areas.

Forward-Looking Statements

This press release contains certain "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and should be reviewed in conjunction with the company's Annual Report on Form 10-K and other publicly available information regarding the company, copies of which are available from the company upon request. Such publicly available information sets forth certain risks and uncertainties related to the company's business which should be considered in evaluating "Forward-Looking Statements."

Financial Highlights Midwest Banc Holdings, Inc. (In thousands, except per share data and percentages)               Three Months Ended   Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008 Income Statement Data: Net (loss) income $ (41,267 ) $ (76,467 ) $ (5,320 ) $ 4,429 $ (159,714 )   Per Share Data: Basic and diluted (loss) earnings (11) $ (1.52 ) $ (2.78 ) $ (0.27 ) $ 0.11 $ (5.76 ) Cash dividends declared — — — — — Book value 2.02 3.45 6.38

 

6.56 5.89 “If converted” book value(10) 3.22 4.53 7.18 7.35 6.74 Tangible book value(1) (1.25 ) 0.15 3.05 3.21 2.51 “If converted” tangible book value(1)(10) 0.26 1.53 4.16 4.31 3.68 Stock price at period end 0.71 0.75 1.01 1.40 4.00   Share Data: Common shares outstanding – at period end 28,116 27,944 27,929 27,893 27,859 Basic - average 27,953 27,926 27,925 27,863 27,859 Diluted - average 27,953 27,926 27,925 27,863 27,859   Selected Financial Ratios: Return on average assets (4.49 ) percent (8.38 ) percent (0.59 ) percent 0.49 percent (17.25 ) percent Return on average equity (78.30 ) (103.60 ) (7.12 ) 7.17 (181.60 ) Net interest margin (tax equivalent) 1.83 2.52 2.63 2.51 2.77 Efficiency ratio(2)(3) 98 97 84 105 387 Dividend payout ratio (11) — — — — — Loans to deposits at period end 96 101 102 104 99 Loans to assets at period end 69 72 70 70 70 Equity to assets at period end 5.09 6.15 8.11 8.57 5.78

Tangible equity to tangible assets at period end(1)(4)

2.56 3.66 5.75 6.11 3.24 Tier 1 common capital to risk-weighted assets (1.24 ) 0.33 1.25 1.98 2.64 Tier 1 capital to risk-weighted assets 6.05 7.20 7.42 8.30 6.26 Total capital to risk-weighted assets 7.95 9.03 9.18 10.07 8.04 Tier 1 leverage ratio 4.26 5.35 6.24 6.90 4.94   Full time equivalent employees 420 497 542 536 550   Balance Sheet Data: Total earning assets $ 3,392,458 $ 3,382,725 $ 3,339,448 $ 3,195,408 $ 3,176,629 Average earning assets 3,476,611 3,344,103 3,268,589 3,219,078 3,263,571 Average assets 3,650,053 3,660,670 3,648,873 3,590,313 3,682,449 Average loans 2,505,134 2,584,757 2,543,770 2,499,802 2,512,653 Average securities 639,588 669,494 688,334 668,830 715,219 Average deposits 2,630,148 2,529,526 2,474,262 2,478,948 2,411,013 Tangible shareholders’ equity(1) 88,413 127,272 208,098 212,289 113,101 Average equity 209,097 296,055 303,019 245,795 349,878     See footnotes at end of statements, tables and schedules.     Financial Highlights Midwest Banc Holdings, Inc. (In thousands, except per share data and percentages)        

 

Nine Months Ended

  Sept. 30, Sept. 30, 2009 2008 Income Statement Data: Net (loss) income $ (123,054 ) $ (162,702 )   Per Share Data: Basic and diluted (loss) earnings $ (4.57 ) $ (5.93 ) Cash dividends declared —

0.26

 

  Share Data: Common shares outstanding – at period end 28,116 27,859 Basic - average 27,936 27,851 Diluted - average 27,936 27,851   Selected Financial Ratios: Return on average assets (4.50 ) percent (5.90 ) percent Return on average equity (61.15 ) (58.64 ) Net interest margin (tax equivalent) 2.30 2.83 Efficiency ratio(2)(3) 92 155 Dividend payout ratio — N/M   Full time equivalent employees 420 550   Balance Sheet Data: Total earning assets $ 3,392,458 $ 3,176,629 Average earning assets 3,363,863 3,271,594 Average assets 3,653,203 3,685,013 Average loans 2,544,412 2,477,452 Average securities 665,627 747,905 Average deposits 2,545,216 2,403,748 Tangible shareholders’ equity(1) 88,413 113,101 Average equity 269,046 370,643     See footnotes at end of statements, tables and schedules.     Statement of Income Midwest Banc Holdings, Inc. (In Thousands, except per share data)                

 

Three Months Ended

  Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008 Interest Income Loans $ 33,294 $ 35,348 $ 34,549 $ 35,558 $ 37,364 Securities Taxable 1,488 4,663 6,940 7,381 7,739 Exempt from federal income taxes 29 406 550 551 574 Dividends from FRB and FHLB stock 160 170 190 190 184 Short-term investments 164   75   37   54   27   Total interest income 35,135   40,662   42,266   43,734   45,888     Interest Expense Deposits 11,385 12,210 13,685 15,524 15,301 Federal funds purchased and FRB discount window advances — 20 29 14 563 Securities sold under repurchase agreements 3,264 3,229 3,205 3,264 3,338 Advances from the FHLB 3,065 3,035 3,029 3,126 2,779 Junior subordinated debentures 497 615 739 911 864 Revolving note payable 158 88 43 204 96 Term note payable 679 266 282 616 565 Subordinated debt 145   144   152   243   229   Total interest expense 19,193   19,607   21,164   23,902   23,735     Net interest income 15,942 21,055 21,102 19,832 22,153 Provision for credit losses(12) 37,450   20,750   13,253   20,275   42,200   Net interest income after provision for credit losses (21,508 ) 305 7,849 (443 ) (20,047 )   Noninterest Income Service charges on deposit accounts 2,013 1,953 1,894 1,908 1,918 Gains (losses) on securities transactions 386 4,251 — — (16,652 ) Impairment loss on securities — (740 ) — — (47,801 ) Gains on sales of loans — — — — (75 ) Insurance and brokerage commissions 268 338 320 333 448 Trust 337 296 282 241 451 Increase in CSV of life insurance — 490 842 875 911 Gain on sale of property — — — — — Other 653   707   5   375   288   Total noninterest income (loss) 3,657   7,295   3,343   3,732   (60,512 )   Noninterest Expenses Salaries and employee benefits 8,948 11,859 11,083 13,819 12,515 Occupancy and equipment 3,175 3,356 3,245 3,511 3,211 Professional services 2,838 1,890 2,102 3,240 2,016 Marketing 201 339 688 842 575 Foreclosed properties 3,098 450 345 66 24 Amortization of intangible assets 573 573 573 590 590 Merger related charges — — — — 77 Goodwill impairment charge — — — — 80,000 Other 3,617   5,953   3,472   3,335   4,038   Total noninterest expenses 22,450   24,420   21,508   25,403   103,046     (Loss) income before income taxes (40,301 ) (16,820 ) (10,316 ) (22,114 ) (183,605 ) Provision (benefit) for income taxes 966   59,647   (4,996 ) (26,543 ) (23,891 ) Net (Loss) Income $ (41,267 ) $ (76,467 ) $ (5,320 ) $ 4,429   $ (159,714 )   Net (loss) income available to common shareholders (11) $ (42,556 ) $ (77,757 ) $ (7,443 ) $ 3,138 $ (160,550 )   Basic and diluted (loss) earnings per share (11) $ (1.52 ) $ (2.78 ) $ (0.27 ) $ 0.11   $ (5.76 ) Cash dividends declared per share $ —   $ —   $ —   $ —   $ —     Top line revenue (5) $ 19,599 $ 28,350 $ 24,445 $ 23,564 $ (38,359 ) Noninterest income to top line revenue 19 percent 26 percent 14 percent 16 percent N/M     See footnotes at end of statements, tables and schedules.     Statement of Income Midwest Banc Holdings, Inc. (In Thousands, except per share data)                  

 

Nine Months Ended

 

Sept. 30, Sept. 30, Increase Increase 2009 2008 (Decrease) (Decrease) Interest Income Loans $ 103,191 $ 115,562 $ (12,371 ) (10.7 ) percent Securities Taxable 13,091 25,776 (12,685 ) (49.2 ) Exempt from federal income taxes 985 1,765 (780 ) (44.2 ) Dividends from FRB and FHLB stock 520 551 (31 ) (5.6 ) Short-term investments 276   273   3   1.1   Total interest income 118,063   143,927   (25,864 ) (18.0 )   Interest Expense Deposits 37,280 50,501 (13,221 ) (26.2 ) Federal funds purchased and FRB discount window advances 49 2,050 (2,001 ) (97.6 ) Securities sold under repurchase agreements 9,698 9,998 (300 ) (3.0 ) Advances from the FHLB 9,129 8,698 431 5.0 Junior subordinated debentures 1,851 2,785 (934 ) (33.5 ) Revolving note payable 289 270 19 7.0 Term note payable 1,227 2,027 (800 ) (39.5 ) Subordinated debt 441   464   (23 ) (5.0 ) Total interest expense 59,964   76,793   (16,829 ) (21.9 )   Net interest income 58,099 67,134 (9,035 ) (13.5 ) Provision for credit losses(12) 71,453   52,367   19,086   36.4   Net interest income after provision for credit losses (13,354 ) 14,767 (28,121 ) (190.4 )   Noninterest Income Service charges on deposit accounts 5,860 5,834 26 0.4 (Losses) gains on securities transactions 4,637 (16,596 ) 21,233 (127.9 ) Impairment loss on securities (740 ) (65,387 ) 64,647 (98.9 ) Gains on sales of loans — (75 ) 75 (100.0 ) Insurance and brokerage commissions 926 1,691 (765 ) (45.2 ) Trust 915 1,382 (467 ) (33.8 ) Increase in CSV of life insurance 1,332 2,634 (1,302 ) (49.4 ) Gain on sale of property — 15,196 (15,196 ) (100.0 ) Other 1,365   993   372   37.5   Total noninterest income (loss) 14,295   (54,328 ) 68,623   (126.3 )   Noninterest Expenses Salaries and employee benefits 31,890 36,570 (4,680 ) (12.8 ) Occupancy and equipment 9,776 9,203 573 6.2 Professional services 6,830 5,350 1,480 27.7 Marketing 1,228 1,864 (636 ) (34.1 ) Foreclosed properties 3,893 266 3,627 1,363.5 Amortization of intangible assets 1,719 1,771 (52 ) (2.9 ) Merger related charges — 271 (271 ) (100.0 ) Loss on extinguishment of debt — 7,121 (7,121 ) (100.0 ) Goodwill impairment charge — 80,000 (80,000 ) (100.0 ) Other 13,042   9,255   3,787   40.9   Total noninterest expenses 68,378   151,671   (83,293 ) (54.9 )   (Loss) income before income taxes (67,437 ) (191,232 ) 123,795 (64.7 ) Provision (benefit) for income taxes 55,617   (28,530 ) 84,147   (294.9 ) Net (Loss) Income $ (123,054 ) $ (162,702 ) $ 39,648   (24.4 )   Net (loss) income available to common shareholders $ (127,756 ) $ (165,209 ) $ 37,453 (22.7 )   Basic and diluted (loss) earnings per share $ (4.57 ) $ (5.93 ) $ 1.36   (22.9 ) Cash dividends declared per share $ —   $ 0.26   $ 0.26   100.0     Top line revenue (5) $ 72,394 $ 12,806 $ 59,588 465.3 Noninterest income to top line revenue 20 percent N/M     See footnotes at end of statements, tables and schedules.     Balance Sheet Midwest Banc Holdings, Inc. (In thousands)     Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008 Assets Cash $ 32,278 $ 36,965 $ 56,516 $ 61,330 $ 111,769 Short-term investments 295,162 160,538 1,762 1,735 1,674   Securities available-for-sale 615,543 633,282 685,858 621,949 618,215 Securities held-to-maturity -   -   29,082   30,267   30,817   Total securities 615,543 633,282 714,940 652,216 649,032   Federal Reserve and FHLB stock, at cost 27,652 29,648 31,698 31,698 31,698   Loans 2,454,101 2,559,257 2,591,048 2,509,759 2,494,225 Allowance for loan losses (83,506 ) (63,893 ) (53,011 ) (44,432 ) (39,428 ) Net loans 2,370,595 2,495,364 2,538,037 2,465,327 2,454,797   Cash value of life insurance — — 85,517 84,675 83,800 Premises and equipment 40,589 40,795 38,528 38,313 38,216 Foreclosed properties 20,980 19,588 18,534 12,018 8,025 Goodwill and other intangibles 91,826 92,399 92,972 93,546 94,136 Other 49,505   60,620   134,560   129,354   110,230   Total assets $ 3,544,130   $ 3,569,199   $ 3,713,064   $ 3,570,212   $ 3,583,377     Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing $ 330,901 $ 336,347 $ 343,422 $ 334,495 $ 334,545 Interest-bearing 2,224,288   2,202,143   2,200,583   2,078,296   2,178,459   Total deposits 2,555,189 2,538,490 2,544,005 2,412,791 2,513,004   Federal funds purchased & FRB discount window — — 55,000 — — Securities sold under repurchase agreements 297,650 297,650 297,650 297,650 297,650 FHLB advances 340,000 340,000 340,000 380,000 380,000 Junior subordinated debentures 60,828 60,824 60,807 60,791 60,774 Revolving note payable 8,600 8,600 8,600 8,600 20,600 Term note payable 55,000 55,000 55,000 55,000 55,000 Subordinated debt 15,000 15,000 15,000 15,000 15,000 Other 31,624   33,964   35,932   34,546   34,112   Total liabilities 3,363,891   3,349,528   3,411,994   3,264,378   3,376,140     Shareholders’ Equity Preferred equity 123,436 123,206 122,976 122,748 43,125 Common equity 60,835 102,047 178,362 185,208 175,806 Accumulated other comprehensive loss (4,032 ) (5,582 ) (268 ) (2,122 ) (11,694 ) Total shareholders' equity 180,239   219,671   301,070   305,834   207,237   Total liabilities and shareholders' equity $ 3,544,130   $ 3,569,199   $ 3,713,064   $ 3,570,212   $ 3,583,377     Loan Portfolio Composition – Source of Repayment

 

Sept. 30, 2009

 

Dec. 31, 2008

Percent of Percent of ($ in millions) Total ($ in millions) Total Commercial $ 1,046 43 $ 1,090 43 Construction 324 13 366 15 Commercial real estate 744 30 730 29 Consumer 234 10 201 8 Residential mortgage 107   4   123   5   Total loans, gross excluding deferred fees $ 2,455   100   $ 2,510   100   Net Interest Margin Midwest Banc Holdings, Inc. (In thousands)                    

 

For the Three Months Ended

  Sept. 30, 2009 June 30, 2009 Sept. 30, 2008 Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Interest-Earning Assets: Short-term investments $ 303,890 0.22 percent $ 59,551 0.50 percent $ 6,005 1.80 percent Securities: Taxable(6) 637,198 0.93 626,489 2.98 654,531 4.78 Exempt from federal income taxes(6) 2,390   4.85 43,005   3.78 60,688   5.82 Total securities 639,588 0.95 669,494 3.03 715,219 4.87 FRB and FHLB stock 27,999 2.29 30,301 2.24 29,694 2.48 Loans (7)(8)(9) 2,505,134   5.32 2,584,757   5.47 2,512,653   5.96 Total interest-earning assets $ 3,476,611 4.04 percent $ 3,344,103 4.86 percent $ 3,263,571 5.68 percent   Noninterest-Earning Assets: Cash $ 34,903 $ 44,037 $ 57,463 Premises and equipment 40,705 39,331 38,412 Allowance for loan losses (67,605 ) (58,211 ) (23,059 ) Other 165,439   291,410   346,062   Total noninterest-earning assets 173,442   316,567   418,878   Total assets $ 3,650,053   $ 3,660,670   $ 3,682,449     Interest-Bearing Liabilities: Deposits: Interest-bearing demand deposits $ 179,094 0.46 percent $ 178,231 0.50 percent $ 194,416 0.87 percent Money-market demand and savings accounts 344,203 0.80 358,791 0.80 393,745 1.20 Time deposits 1,765,654   2.38 1,658,904   2.72 1,487,827   3.68 Total interest-bearing deposits 2,288,951 1.99 2,195,926 2.22 2,075,988 2.95 Borrowings: Fed funds purch & repurchase agreements 297,693 4.39 319,397 4.07 403,025 3.87 FHLB advances 340,000 3.61 342,637 3.54 348,315 3.19 Junior subordinated debentures 60,827 3.27 60,816 4.04 60,766 5.69 Revolving note payable 8,600 7.35 8,600 4.09 9,404 4.08 Term note payable 55,000 4.94 55,000 1.93 55,000 4.11 Subordinated debt 15,000   3.87 15,000   3.84 15,000   6.11 Total borrowings 777,120   4.02 801,450   3.69 891,510   3.78 Total interest-bearing liabilities $ 3,066,071 2.50 percent $ 2,997,376 2.62 percent $ 2,967,498 3.20 percent   Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits $ 341,197 $ 333,600 $ 335,025 Other liabilities 33,688   33,639   30,048   Total noninterest-bearing liabilities 374,885   367,239   365,073   Shareholders’ equity 209,097   296,055   349,878   Total liabilities and shareholders’ equity $ 3,650,053   $ 3,660,670   $ 3,682,449     Net interest margin (tax equivalent)(6)(9) 1.83 percent 2.52 percent 2.77 percent     See footnotes at end of statements, tables and schedules.     Net Interest Margin Midwest Banc Holdings, Inc. (In thousands)              

 

For the Nine Months Ended

 

Sept. 30, 2009

Sept. 30, 2008 Average Average Average Average Balance Rate Balance Rate Interest-Earning Assets: Short-term investments $ 123,838 0.30 percent $ 16,840 2.16 percent Securities: Taxable(6) 631,184 2.77 686,517 5.22 Exempt from federal income taxes(6) 34,443   3.81 61,388   5.90 Total securities 665,627 2.82 747,905 5.28 FRB and FHLB stock 29,986 2.31 29,397 2.50 Loans (7)(8)(9) 2,544,412   5.41 2,477,452   6.23 Total interest-earning assets $ 3,363,863 4.68 percent $ 3,271,594 5.96 percent   Noninterest-Earning Assets: Cash $ 49,191 $ 55,272 Premises and equipment 39,410 39,290 Allowance for loan losses (57,517 ) (23,584 ) Other 258,256   342,441   Total noninterest-earning assets 289,340   413,419   Total assets $ 3,653,203   $ 3,685,013     Interest-Bearing Liabilities: Deposits: Interest-bearing demand deposits $ 176,893 0.51 percent $ 208,949 1.06 percent Money-market demand and savings accounts 351,563 0.82 401,377 1.40 Time deposits 1,681,472   2.73 1,468,836   4.05 Total interest-bearing deposits 2,209,928 2.25 2,079,162 3.24 Borrowings: Fed funds purch & repurchase agreements 316,893 4.10 418,992 3.83 FHLB advances 348,462 3.49 319,943 3.62 Junior subordinated debentures 60,814 4.06 60,749 6.11 Revolving note payable 8,600 4.48 8,227 4.38 Term note payable 55,000 2.97 59,927 4.51 Subordinated debt 15,000   3.92 10,073   6.14 Total borrowings 804,769   3.76 877,911   3.99 Total interest-bearing liabilities $ 3,014,697 2.65 percent $ 2,957,073 3.46 percent   Noninterest-Bearing Liabilities: Noninterest-bearing demand deposits $ 335,288 $ 324,586 Other liabilities 34,172   32,711   Total noninterest-bearing liabilities 369,460   357,297   Shareholders’ equity 269,046   370,643   Total liabilities and shareholders’ equity $ 3,653,203   $ 3,685,013     Net interest margin (tax equivalent)(6)(9) 2.30 percent 2.83 percent     See footnotes at end of statements, tables and schedules.     Credit Risk Management Midwest Banc Holdings, Inc. (In thousands)              

 

Three Months Ended

  Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Loan Quality Nonaccrual loans $ 193,877 $ 95,023 $ 80,332 $ 61,104 $ 60,474 Troubled debt restructuring — 11,006 11,006 11,006 — Nonperforming loans 193,877 106,029 91,338 72,110 60,474 Foreclosed properties 20,980 19,588 18,534 12,018 8,025   Nonperforming assets $ 214,857 $ 125,617 $ 109,872 $ 84,128 $ 68,499   90+ days past due and accruing $ — $ — $ — $ — $ —     Loans $ 2,454,101 $ 2,559,257 $ 2,591,048 $ 2,509,759 $ 2,494,225   Loan-related assets $ 2,475,081 $ 2,578,845 $ 2,609,582 $ 2,521,777 $ 2,502,250   Nonaccrual loans to loans 7.90 percent 3.71 percent 3.10 percent 2.43 percent 2.42 percent   Nonperforming assets to loan-related assets 8.68 percent 4.87 percent 4.21 percent 3.34 percent 2.74 percent   Nonperforming assets to total assets 6.06 percent 3.52 percent 2.96 percent 2.36 percent 1.91 percent   Allowance for Loan Losses Beginning balance $ 63,893 $ 53,011 $ 44,432 $ 39,428 $ 22,606 Provision for loan losses (12) 36,700 20,000 13,000 20,000 41,950 Net chargeoffs (recoveries) 17,087 9,118 4,421 14,996 25,128 Ending balance $ 83,506 $ 63,893 $ 53,011 $ 44,432 $ 39,428   Net chargeoffs to average loans 2.71 percent 1.41 percent 0.70 percent 2.39 percent 3.98 percent   Delinquencies 30 – 89 days to loans 3.24 percent 2.18 percent 1.48 percent 1.03 percent 0.99 percent   Allowance for loan losses to Loans at period end 3.40 percent 2.50 percent 2.05 percent 1.77 percent 1.58 percent Nonaccrual loans 43 percent 67 percent 66 percent 73 percent 65 percent     Footnotes Midwest Banc Holdings, Inc. (In thousands)               (1) Shareholders’ equity less goodwill and net core deposit intangible and other intangibles.   Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Shareholders’ equity $ 180,239 $ 219,671 $ 301,070 $ 305,834 $ 207,237 Core deposit intangible & other intangibles, net (12,964 ) (13,537 ) (14,110 ) (14,683 ) (15,274 ) Goodwill (78,862 ) (78,862 ) (78,862 ) (78,862 ) (78,862 ) Tangible shareholders’ equity $ 88,413   $ 127,272   $ 208,098   $ 212,289   $ 113,101     (2) Excludes net gains or losses on securities transactions.   (3) Noninterest expense less amortization and foreclosed properties expenses divided by the sum of

net interest income (tax equivalent) plus noninterest income.

  (4) Total assets less goodwill and net core deposit intangible and other intangibles.   Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Total assets $ 3,544,130 $ 3,569,199 $ 3,713,064 $ 3,570,212 $ 3,583,377 Core deposit intangible & other intangibles, net (12,964 ) (13,537 ) (14,110 ) (14,683 ) (15,274 ) Goodwill (78,862 ) (78,862 ) (78,862 ) (78,862 ) (78,862 ) Tangible assets $ 3,452,304   $ 3,476,800   $ 3,620,092   $ 3,476,667   $ 3,489,241     (5) Includes net interest income and noninterest income.   (6) Adjusted for 35 percent tax rate and for the dividends-received deduction where applicable, except for the quarter and nine months ended September 30, 2009 and the quarter ended June 30, 2009 as a result of the Company's current tax position.   (7) Nonaccrual loans are included in the average balance; however, these loans are not earning any interest.   (8) Includes loan fees.   (9) Reconciliation of reported net interest income to tax equivalent net interest income.   Three Months Ended Sept. 30, June 30, Sept. 30, 2009 2009 2008   Net interest income $ 15,942 $ 21,055 $ 22,153 Tax equivalent adjustment to net interest income -   -   457   Net interest income, tax equivalent basis $ 15,942   $ 21,055   $ 22,610     Nine Months Ended Sept. 30, Sept. 30, 2009 2008   Net interest income $ 58,099 $ 67,134 Tax equivalent adjustment to net interest income -   2,258   Net interest income, tax equivalent basis $ 58,099   $ 69,392     (10) Reconciliation of common equity to shareholders’ equity.   Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Preferred equity $ 123,436 $ 123,206 $ 122,976 $ 122,748 $ 43,125 Common equity 56,803   96,465   178,094   183,086   164,112   Shareholders’ equity $ 180,239   $ 219,671   $ 301,070   $ 305,834   $ 207,237     Reconciliation of tangible common equity to tangible shareholders’ equity.  

Sept. 30,

June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Preferred equity $ 123,436 $ 123,206 $ 122,976 $ 122,748 $ 43,125 Tangible common equity (35,023 ) 4,066   85,122   89,541   69,976   Tangible shareholders’ equity $ 88,413   $ 127,272   $ 208,098   $ 212,289   $ 113,101     Reconciliation of common shares outstanding at period end to “if converted” shares outstanding.   Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Common shares outstanding 28,116 27,944 27,929 27,893 27,859 Resulting common shares if preferred shares were converted 2,875   2,875   2,875   2,875   2,875   “If converted” shares outstanding 30,991   30,819   30,804   30,768   30,734     (11) Prior periods with earnings were re-stated per ASC 260-10-55, which was effective on January 1, 2009, to allocate earnings available to common shareholders to restricted shares of common stock that are considered participating securities.

 

  (12) The provision for credit losses includes the provision for loan losses and the provision for unfunded commitment losses as follows.   Three Months Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2009 2009 2009 2008 2008   Provision for loan losses $ 36,700 $ 20,000 $ 13,000 $ 20,000 $ 41,950 Provision for unfunded commitments losses 750   750   253   275   250   Provision for credit losses $ 37,450   $ 20,750   $ 13,253   $ 20,275   $ 42,200     Nine Months Ended Sept. 30, Sept. 30, 2009 2008   Provision for loan losses $ 69,700 $ 51,765 Provision for unfunded commitments losses 1,753   602   Provision for credit losses $ 71,453   $ 52,367